In a bid to clarify the reporting obligations of trading data following a no-deal Brexit, the European Securities and Markets Authority (“ESMA”) has published a statement providing guidance on how trading data between the United Kingdom and the European Union should be handled.
Under the European Market Infrastructure Regulation (“EMIR”), all derivative trades have to be reported to a Trade Repository (“TR”) subject to ESMA supervision. Since both counterparties to derivative contracts are obliged to report to a TR, these TRs collect and maintain two-way data on every derivative transaction subject to the scope of EMIR.
Should the UK leave the EU without a deal in place, UK counterparties would no longer fall within the scope of EMIR and would not be obliged to report their trading data to a central TR. Apart from expecting a greater probability of trade report mismatches, many EU counterparties had no clear thoughts on how to handle the reporting of transactions with their UK counterparts in the event of a no-deal Brexit.
ESMA’s public statement provides EU counterparties and TRs with a manual on how to tackle these issues. The clarification offered by ESMA centres on five major topics: (i) reporting of transactions by CCPs to TRs, (ii) subsequent TR data reconciliation, (iii) TR and counterparty recordkeeping, (iv) access by the relevant authorities to TR-gathered EMIR data, and (v) portability of EMIR data from UK-based TRs to and from EU27 TRs.
The guidelines provided in the statement for the first four topics mentioned above (situations (i) through (iv)) are furthermore covered from four different situational angles, i.e. (i) EU27-EU27, (ii) EU27-UK, (iii) UK-EU27 and (iv) UK-UK.
The ESMA guidance furthermore sets out a detailed timeline, which varies depending on the topic covered, in connection with the relevant adjustments or steps that EU (i.e. EU27) RTs should undertake.
Keep in mind that the guidance only covers a no-deal scenario. In the case of an ‘orderly’ Brexit, other guidelines on the treatment of trading data between the EU and the UK may apply.
Jan Hellinx, Junior Associate, jan.hellinx@cms-db.com
Benoît Vandervelde, Associate Partner, benoit.vandervelde@cms-db.
